Low-dimensional Characterisation of Liquidity of Individual Stocks in the Indian Market

Devlina Chatterjee and Chiranjit Mukhopadhyay
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Devlina Chatterjee: Devlina Chatterjee (corresponding author), Assistant Professor, Industrial and Management Engineering, IIT Kanpur, Kanpur, India. Address: IME Department, IIT Kanpur Campus, Kanpur 208016, India. Previous address for DC: Department of Management Studies, IISC, Bangalore, India. E-mail: devlina100@gmail.com
Chiranjit Mukhopadhyay: Chiranjit Mukhopadhyay, Professor, Department of Management Studies, Indian Institute of Science, Bangalore, India. E-mail: cm@mgmt.iisc.ernet.in

Journal of Emerging Market Finance, 2013, vol. 12, issue 2, 151-196

Abstract: There is no single, definitive and universally accepted measure of a stock’s ‘liquidity’. The literature proposes a large number of proxy measures for liquidity. Suitable low dimensional characterisation of liquidity may improve understanding and enable better market regulation. We present factor analyses of stock-specific liquidity measures, using cross-sectional data from the National Stock Exchange of India, for two time periods reflecting different market conditions. Day-wise analyses of eleven liquidity proxies suggest five factors, interpretable as spread, depth, volume, price elasticity and relative activity. Consistency in the results obtained from the two periods suggests that the factor structure is stable. JEL Classification: G11, C38

Keywords: Liquidity; stock market; factor analysis; National Stock Exchange of India (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:12:y:2013:i:2:p:151-196

DOI: 10.1177/0972652713494044

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